Retailers are expecting a further fall in August. This week UK growth figures showed that the UK economy grew by a mere 0.2% in the previous quarter, however this was better than many expected so sterling actually gained against the euro and US dollar. The UK's much maligned austerity measures actually helped make UK assets more attractive this week as the USA and Europe struggle with their respective debt burdens.

In the euro zone, the euro weakened as European economic confidence fell and credit rating agency Standard & Poor's cut Greece's credit rating again stating that the country will partially default. Despite last week's euro rally after a second round bailout for the stricken country, lingering concerns remain this week - especially over Germany's buy-in to the scheme. One politician questioned the 'blank cheque' that his country had written to the European rescue fund. An Italian bond auction on Thursday failed to attract much demand subsequently putting further pressure on the single currency.

It has been a turbulent week in the USA. Debate has been deadlocked in Congress over a package of spending cuts and tax rises that are needed before the self-imposed debt ceiling can be raised. Republicans and Democrats are at loggerheads over taxes. This is a problem because the US government will run out of money to pay key bills on August 4.

Elsewhere, safe haven currencies have seen record highs this week against the US dollar. The Swiss franc hit an all-time high against the US dollar on concerns over the debt ceiling in the USA and the Japanese yen hit the highest level against the US dollar since the Second World War. The Canadian dollar also made gains as investors brought forward expectations for an interest rate rise.

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